Operations Management Chapter 11 – Supply Chain Management PowerPoint presentation to accompany Heizer/Render Principles of Operations Management, 7e Operations Management, 9e © 2008 Prentice Hall, Inc 11 – Outline Global Company Profile: Darden Restaurants The Supply Chain’s Strategic Importance Global Supply Chain Issues Supply Chain Economics Make-or-Buy Decisions Outsourcing © 2008 Prentice Hall, Inc 11 – Outline – Continued Ethics in the Supply Chain Supply Chain Strategies Many Suppliers Few Suppliers Vertical Integration Keiretsu Networks Virtual Companies © 2008 Prentice Hall, Inc 11 – Outline – Continued Managing the Supply Chain Issues in an Integrated Supply Chain Opportunities in an Integrated Supply Chain E-Procurement Online Catalogs Auctions RFQs Realtime Inventory Tracking © 2008 Prentice Hall, Inc 11 – Outline – Continued Vendor Selection Vendor Evaluation Vendor Development Negotiations © 2008 Prentice Hall, Inc 11 – Outline – Continued Logistics Management Distribution Systems Third-Party Logistics Cost of Shipping Alternatives Logistics, Security, and JIT Measuring Supply Chain Performance © 2008 Prentice Hall, Inc 11 – Learning Objectives When you complete this chapter you should be able to: Explain the strategic importance of the supply chain Identify five supply chain strategies Explain issues and opportunities in the supply chain Describe approaches to supply chain negotiations © 2008 Prentice Hall, Inc 11 – Learning Objectives When you complete this chapter you should be able to: Evaluate supply chain performance Compute percent of assets committed to inventory Compute inventory turnover © 2008 Prentice Hall, Inc 11 – Darden Restaurants Largest publicly traded casual dining company in the world Serves over 300 million meals annually in more than 1,400 restaurants in the US and Canada Annual sales of $2.4 billion Operations is the strategy © 2008 Prentice Hall, Inc 11 – Darden Restaurants Sources food from five continents and thousands of suppliers Four distinct supply chains Over $1.5 billion spent annually in supply chains Competitive advantage achieved through superior supply chain © 2008 Prentice Hall, Inc 11 – 10 Distribution Systems Airfreight Fast and flexible for light loads May be expensive © 2008 Prentice Hall, Inc 11 – 50 Distribution Systems Waterways Typically used for bulky, lowvalue cargo Used when shipping cost is more important than speed © 2008 Prentice Hall, Inc 11 – 51 Distribution Systems Pipelines Used for transporting oil, gas, and other chemical products © 2008 Prentice Hall, Inc 11 – 52 Third-Party Logistics Outsourcing logistics can reduce costs and improve delivery reliability and speed Coordinate supplier inventory with delivery services May provide warehousing, assembly, testing, shipping, customs © 2008 Prentice Hall, Inc 11 – 53 Cost of Shipping Alternatives Product in transit is a form of inventory and has a carrying cost Faster shipping is generally more expensive than slower shipping We can evaluate the two costs to better understand the trade-off © 2008 Prentice Hall, Inc 11 – 54 Cost of Shipping Alternatives Value of connectors = $1,750.00 Holding cost = 40% per year Second carrier is day faster and $20 more expensive Daily cost of = Annual x Product /365 holding holding product value cost = (.40 x $1,750)/ 365 = $1.92 Since it costs less to hold the product one day longer than it does for the faster shipping ($1.92 < $20), we should use the cheaper, slower shipper © 2008 Prentice Hall, Inc 11 – 55 Logistics, Security, and JIT Borders are becoming more open in the U.S and around the world Monitoring and controlling stock moving through supply chains is more important than ever New technologies are being developed to allow close monitoring of location, storage conditions, and movement © 2008 Prentice Hall, Inc 11 – 56 Measuring Supply Chain Performance Typical Firms Benchmark Firms 15 Time spent placing an order 42 minutes 15 minutes Percentage of late deliveries 33% 2% Percentage of rejected material 1.5% 0001% Number of shortages per year 400 Lead time (weeks) Table 11.6 © 2008 Prentice Hall, Inc 11 – 57 Measuring Supply Chain Performance Assets committed to inventory Percent invested in = inventory Total inventory investment x 100 Total assets Investment in inventory = $11.4 billion Total assets = $44.4 billion Percent invested in inventory = (11.4/44.4) x 100 = 25.7% © 2008 Prentice Hall, Inc 11 – 58 Measuring Supply Chain Performance Inventory as a % of Total Assets (with exceptional performance) © 2008 Prentice Hall, Inc Manufacturing (Toyota 5%) 20% Wholesale (Coca-Cola 2.9%) 34% Restaurants (McDonald’s 05%) 2.9% Retail (Home Depot 25.7%) 27% Table 11.7 11 – 59 Measuring Supply Chain Performance Inventory turnover Inventory turnover = © 2008 Prentice Hall, Inc Cost of goods sold Inventory investment 11 – 60 Measuring Supply Chain Performance Examples of Annual Inventory Turnover Food, Beverage, Retail Manufacturing Anheuser Busch 15 Dell Computer 90 Coca-Cola 14 Johnson Controls 22 Toyota (overall) 13 Home Depot McDonald’s 112 Nissan (assembly) 150 Table 11.8 © 2008 Prentice Hall, Inc 11 – 61 Measuring Supply Chain Performance Inventory turnover Net revenue Cost of goods sold Inventory: Raw material inventory Work-in-process inventory Finished goods inventory Total inventory investment © 2008 Prentice Hall, Inc $32.5 $14.2 $.74 $.11 $.84 $1.69 11 – 62 Measuring Supply Chain Performance Inventory turnover Net revenue $32.5 Cost of goods sold Cost of goods sold = $14.2 Inventory turnover Inventory investment Inventory: Raw material inventory $.74 = 14.2 / 1.69$.11 = 8.4 Work-in-process inventory Finished goods inventory $.84 Total inventory investment $1.69 © 2008 Prentice Hall, Inc 11 – 63 Measuring Supply Chain Performance Inventory turnover Net revenue $32.5 Cost of goods sold Cost of goods sold = $14.2 Average weekly Inventory turnover = $14.2 /investment 52 = $.273 cost of goods soldInventory Inventory: Raw material inventory $.74 = 14.2 / 1.69$.11 = 8.4 Inventory investment Work-in-process inventory Weeks of supply = Finished goods inventory $.84 cost of Average weekly Total inventory investment goods sold $1.69 = 1.69 / 273 = 6.19 weeks © 2008 Prentice Hall, Inc 11 – 64 ... $7.69 $7.14 $6.67 90% $16.67 $14.29 $12.50 $11. 11 $10.00 Table 11. 3 © 2008 Prentice Hall, Inc 11 – 19 Make-or-Buy Decisions Reasons for Making 10 11 © 2008 Prentice Hall, Inc Maintain core competence... company Table 11. 4 11 – 20 Make-or-Buy Decisions Reasons for Buying Frees management to deal with its core competence Lower acquisition cost Preserve supplier commitment Obtain technical or management. .. Prentice Hall, Inc Table 11. 5 11 – 26 Principles and Standards for Ethical Supply Management Conduct Know and obey the letter and spirit of laws applicable to supply management Encourage support